SHIPPING OPERATORS: THE PERSPECTIVE
OF GHANAIAN FREIGHT FORWARDERS
BY
PETER DZAKAH FANAM
Post Graduate Diploma (Shipping Management), M.Sc. (Shipping and Transport)
AUSTRALIAN MARITIME COLLEGE
SUBMITTED IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY
UNIVERSITY OF TASMANIA
I
This thesis contains no material which has been accepted for a degree or
diploma by the University of any other institution, except by way of
background information and duly acknowledged in the thesis, and to the best of the candidate’s knowledge and belief no material previously published or
written by another person except where due acknowledgement is made in
the text of the thesis.
II
This thesis may be available for loan and limited copying in accordance with the Copyright Act 1968
III
The research associated with this thesis abides by the National Statement on
Ethical Conduct in Human Research of Australia and is approved by the
Social Sciences and Human Research Ethics Committee of the University of
Tasmania with Ethics Reference number (Ref: H0015046).
IV
ABSTRACT
Despite a great deal of research already conducted on the competitiveness
of liner operators, existing studies have mainly focused on liner operator
competitiveness from the perspective of shippers, and only limited research
has been conducted from the perspective of freight forwarders. Freight
forwarders not only represent 85% of shippers in dealing directly with liner
operators, they also have valuable insights into the commercial operations of
shipping lines. In this study, the views and perspectives of freight forwarders
have been analysed so as to investigate the competitiveness of ocean
container carriers.
A mixed model method was applied to analyse data collected from 103 valid
responses of Ghanaian freight forwarders, and the results from exploratory
factor analysis (EFA) and confirmatory factor analysis (CFA) reveal six
factors which influenced freight forwarder decisions in selecting liner
operators. Schedule reliability was found to be the most influential factor,
followed by documentation accuracy, service quality, freight rate, quick
handling and environment concerns. The results of qualitative data analysis,
based on the open-ended survey questions, also show that Ghanaian freight
forwarder perceptions of customer service were also a significant factor
contributing to liner operator competitiveness. Based on the study results,
implications for liner shipping companies have also been drawn. For
example, to improve their competitiveness, liner shipping companies need to
focus on factors influential to their customers, especially freight forwarders’
decision to select liner operators as identified by the study. Their marketing
strategies need to cover important emerging issues such as environmental
awareness, sustainable development and corporate social responsibilities in
addition to traditional, well known marketing elements such as service quality
and customer satisfaction.
This study has contributed in a number of ways to the literature on liner
shipping competitiveness. First, it applied both exploratory factor analysis
V
shipping lines’ competitiveness that have not been previously considered by
similar studies. Second, the study has found that the views and perceptions
of freight forwarders towards liner operators can offer valuable insights into
the competitiveness of shipping lines. Third, it is the first study conducted on
Ghanaian shipping and its freight forwarding sector. Therefore, the results
can be a good reference for countries with similar social and economic
conditions. The methodology developed by the study can also be replicated
to other countries and sectors (air, land, rail and inland waters) to evaluate
VI
ACKNOWLEDGEMENTS
I am grateful to the Almighty God, through whom all things are possible. He
has given me strength in my weakness throughout this remarkable Ph.D.
journey. This dissertation could not have been completed without the support
and encouragement of my many well-wishers, to whom I would like to
express my thanks.
Firstly, I would like to thank my respected primary supervisor, Dr Hong-Oanh
(Owen) Nguyen for his generous and responsible guidance, constructive
suggestions and excellent mentoring. I am indeed grateful for his partnership
and endless support throughout my thesis journey. My sincere gratitude goes
to him for the key role he played in facilitating my entry into AMC to
undertake this Ph.D. study.
I acknowledge my gratitude to my honourable co-supervisor Dr Stephen
Cahoon for his endless support, mentoring and insightful feedback during this
extraordinary journey.
I wish to thank the Director of the National Centre for Ports and Shipping,
Professor Thanasis Karlis, my current Graduate Research Coordinator Dr
Hossein Enshaei, Professor Nataliya Nikolova, Dr Jiangang Fei, Dr Peggy
Chen, Dr Hilary Pateman, Dr Quazi Sakalayen, Mr Prashant Bhaskar, and all
the academics of the Maritime and Logistics Management (MLM) Department
at the Australian Maritime College, as well as the University of Tasmania for
extending their kind suggestions and support during my research.
Thanks to all staff of the Maritime and Logistics Management Department,
including Ms Jackie Evans, Ms Heather Hepburn and others for providing
excellent executive support throughout the research process. Thanks to all
web survey respondents for sharing their insights and thoughts, without
which the empirical side of this research would not have been possible.
VII
Isaiah Okorie, Shadi Alghaffari, Ali Alavi, Hadi Vandchali and Jack Dyer in
the Department of Maritime and Logistics Management, and also from the
Engineering group, Rabiul Islam, Ahmed Swidan, Nagi Abdussamie, Md
Al-Amin Baksh, Gregory Cox and all researchers in the AMC research hub and
their families I thank them for making my PhD research life a much more
enjoyable one.
A special thanks to my wife and my children. I owe a debt of gratitude to my
lovely wife Mrs Rebecca Dzakah Fanam for her unending love and
continuous encouragement, which has given me the inspiration to journey
through the low and high tides of research life to reach this ultimate academic
destination. May God continue to bless you and fulfil your heart's desires as
you have laid aside your career to support me through this journey. The
journey of my study would also not have been possible without the prayers
and faithful support of my adorable children. My love and thanks to all of
them: Kafui Dzakah Fanam, Eyram Dzakah Fanam, Nutifafa Dzakah Fanam,
and Jedidiah Mawulorm Dzakah-Fanam who have motivated me. I would like
to thank my late mother for her mentorship, unfortunately she is no longer
with us to witness my graduation as she so desired. My gratitude goes to my
siblings Simon Kobla Dzaka, John Anumu Dzaka and Janet Rabasu Dzaka.
Lastly, I dedicate this doctoral thesis to my lovely wife and my children. God
VIII
In this thesis by monograph, the following papers were published in peer reviewed conferences and international journals:
Fanam, DP and Nguyen, OH and Cahoon S, “An empirical analysis of the influential factors affecting ocean carriers’ competitiveness: Freight forwarders’ perspective”, International Associations of Maritime Economics (IAME 2016).
Fanam, DP, and Nguyen, OH and Cahoon S, “Selection of ocean container carrier from country perspective”, African Journal of Business Management (AJBM/03.10.16/8173 2016) – Under Review
Fanam, DP and Nguyen, OH and Cahoon S “An empirical analysis of the freight forwarders’ buying behaviour implications for the ocean carriers:”, 18th International Conference on Maritime Transport (ICMT 2016)
IX
TABLE OF CONTENTS
DECLARATION OF ORIGINALITY ... I STATEMENT OF AUTHORITY OF ACCESS ... II STATEMENT OF ETHICAL CONDUCT ... III ABSTRACT ... IV ACKNOWLEDGEMENTS ... VI PUBLISHED PAPERS ... VIII TABLE OF CONTENTS ... IX
LIST OF TABLES... XII LIST OF FIGURES ... XIII GLOSSARY ... XIV
CHAPTER 1 INTRODUCTION ... 2
1.1 RESEARCH BACKGROUND ... 2
1.2 PROBLEM STATEMENT AND MOTIVATIONS... 4
1.3 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS ... 7
1.4 RESEARCH METHODS AND ANALYSIS ... 9
1.5 CONTRIBUTIONS AND SIGNIFICANCE OF THE STUDY ... 11
1.6 STRUCTURE OF THE THESIS ... 12
CHAPTER 2 CARRIER CHOICE CRITERIA ... 15
2.1 INTRODUCTION ... 15
2.2 RELATIONSHIPS BETWEEN PARTIES IN LINER SHIPPING ... 17
2.3 THE ROLE OF FREIGHT FORWARDERS IN LINER SHIPPING ... 19
2.3.1 FREIGHT FORWARDERS AS SHIPPING AGENTS ... 22
2.3.2 FREIGHT FORWARDERS AS CARGO CONSOLIDATORS ... 25
2.3.3 FREIGHT FORWARDERS AS DOOR-TO-DOOR TRANSPORT FACILITATORS ... 26
2.4 THE RELATIONSHIP BETWEEN FREIGHTFORWARDERS AND LINER OPERATORS ... 29
2.4.1 DIFFERENT INTERESTS OF SHIPPERS AND CARRIERS ... 30
2.4.2 SHIPPING LINE COMPETITIVENESS: THE FREIGHT FORWARDER'S PERSPECTIVE 32 2.5 SELECTION OF LINER OPERATORS ... 35
2.5.1 CARRIER SELECTION THEORY: THE FREIGHT FORWARDER'S VIEW ... 36
2.6 INFLUENTIAL FACTORS IN LINER OPERATOR SELECTION………39
2.7 LINER OPERATOR SELECTION: NATIONAL PERSPECTIVES ... 48
2.8 SUMMARY... 52
CHAPTER 3 CONCEPTUAL FRAMEWORK DEVELOPMENT AND JUSTIFICATION ... 55
3.1 INTRODUCTION ... 55
3.2 FREIGHT FORWARDERS' BUYING BEHAVIOUR ... 55
3.2.1 THE BUY-GRID DECISION PROCESS ... 58
3.2.2 THE BUYING PROCESS OF FREIGHT FORWARDERS ... 62
3.3 CONCEPTUAL FRAMEWORK ... 65
3.3.1 CONTROLLABLE FACTORS ... 70
3.3.2 UNCONTROLLABLE FACTORS ... 74
3.4 SUMMARY... 77
CHAPTER 4 RESEARCH METHODOLOGY ... 80
4.1 INTRODUCTION ... 80
4.2 RESEARCH PHILOSOPHY AND APPROACH ... 81
4.2.1 JUSTIFICATION OF THE QUANTITATIVE METHOD ... 85
4.2.2 RESEARCH DESIGN ... 86
4.2.3 THE ANALYTICAL PROCESS OF THE RESEARCH ... 90
4.3 THE GHANAIAN CONTAINER SHIPPING MARKET ... 93
4.3.1 THE GHANAIAN ECONOMY AND TRADE ... 93
X
4.3.3 THE GHANAIAN FREIGHT FORWARDING SECTOR ... 102
4.4 SURVEY DESIGN ... 104
4.4.1 SAMPLING ... 104
4.4.2 SAMPLING FRAME ... 105
4.4.3 DATA COLLECTION METHODS ... 106
4.4.4 DESIGN OF THE WEB-BASED SURVEY INSTRUMENT ... 107
4.4.5 SURVEY QUESTIONNAIRE DESIGN ... 109
4.4.6 SECTION A: ORGANISATION PROFILE... 110
4.4.7 SECTION B: FACTORS INFLUENCING FREIGHT FORWARDERS’ CHOICE OF SHIPPING LINE ... 111
4.4.8 SECTION C: OPEN ENDED QUESTION ... 112
4.4.9 SECTION D: RESPONDENT PROFILES... 113
4.4.10 PRE-TESTING ... 113
4.4.11 RESEARCH ETHICS ... 114
4.4.12 WEB-BASED SURVEY ADMINISTRATION ... 115
4.5 SURVEY ERROR CONTROL ... 116
4.5.1 DATA ANALYSIS ... 116
4.5.2 RELIABILITY AND VALIDITY ... 117
4.5.3 DESCRIPTIVE STATISTICS ... 118
4.5.4 RESEARCH ERRORS AND CONTROL ... 119
4.5.5 SAMPLING ERROR ... 120
4.5.6 INDUCED BIAS ... 121
4.6 SUMMARY... 121
CHAPTER 5 RESULTS OF THE RESEARCH SURVEY AND DATA ANALYSIS . 124 5.1 INTRODUCTION ... 124
5.2 CHARACTERISTICS OF SURVEY RESPONDENTS ... 124
5.2.1 SAMPLE ... 124
5.2.2 RESPONDENT ORGANISATION PROFILES ... 126
5.2.3 RESPONDENT PROFILES ... 130
5.2.4 DESCRIPTIVE STATISTICS OF VARIABLES ... 133
5.3 FACTOR ANALYSIS ... 140
5.4 CONFIRMATORY FACTOR ANALYSIS ... 149
5.5 SUMMARY... 160
CHAPTER 6 DISCUSSION OF THE ANALYSIS RESULTS AND IMPLICATIONS ... 163
6.1 INTRODUCTION ... 163
6.2 THE INTERPRETATION OF THE RESULTS ... 164
6.2.1 RESEARCH QUESTIONS ... 164
6.2.1.1 Hypothesis 1 – Schedule Reliability ... 166
6.2.1.2 Hypothesis 2 – Document Accuracy ... 168
6.2.1.3 Hypothesis 3 – Service Quality... 170
6.2.1.4 Hypothesis 4 – The Freight Rate ... 172
6.2.1.5 Hypothesis 5 – Quick Handling ... 174
6.2.1.6 Hypothesis 6 – The Environment ... 176
6.3 THE IMPLICATIONS FOR LINER OPERATORS ... 179
6.4 SUMMARY... 185
CHAPTER 7 CHAPTER 7: SUMMARY, IMPLICATIONS, RECOMMENDATIONS AND CONCLUSIONS ... 189
7.1 INTRODUCTION ... 189
7.2 SUMMARY OF THE STUDY’S MAIN FINDINGS ... 190
7.3 CONTRIBUTIONS OF THIS STUDY ... 193
7.4 LIMITATIONS AND IMPLICATIONS FOR FUTURE RESEARCH ... 195
7.5 CONCLUSIONS ... 197
REFERENCES... 200
XI
APPENDIX A1 ETHICS MINIMUM RISK APPLICATION ... 254
APPENDIX A2 PARTICIPANT INFORMATION SHEET ... 256
APPENDIX B1 PRE-TEST SURVEY ... 259
APPENDIX B2 PRE-NOTIFICATION EMAIL ... 261
APPENDIX B3 EMAIL INVITATION ... 263
APPENDIX B4 SOFT REMINDER LETTER TO BE SENT TO SAMPLE POPULATION ... 265
APPENDIX C QUESTIONNAIRE... 266
FIGURE D DAILY RESPONSE RATES OF THE SURVEY PARTICIPANTS ... 274
TABLE E-1 CASE PROCESSING SUMMARY – MISSING DATA - (APPENDIX E) ... 275
TABLE E-2 INITIAL COMMUNALITIES – (APPENDIX E) ... 276
TABLE E-3 SIX FACTOR ROTATED COMMUNALITIES - (APPENDIX E) ... 277
TABLE E-4 CORRELATION CO-EFFICIENT (APPENDIX E) ... 278
TABLE E-5 PATTERN MATRIXA TWO FACTORS (APPENDIX E) ... 279
TABLE F-1 INDEPENDENT SAMPLES TEST ... 280
TABLE F-2 CORRELATIONS: (GROUP NUMBER 1 - DEFAULT MODEL) ... 280
TABLE F-3 STANDARDIZED REGRESSION WEIGHTS: (ALL - DEFAULT MODEL) ... 281
TABLE F-4 SQUARED MULTIPLE CORRELATIONS: (GROUP NUMBER 1 - DEFAULT MODEL) ... 281
TABLE F-5 VARIANCES: (ALL - DEFAULT MODEL)... 282
TABLE F-6 COVARIANCES: (ALL - DEFAULT MODEL) ... 282
TABLE F-7 MODEL FIT SUMMARY FOR MODIFIED MODEL ... 283
TABLE F-8 STANDARDISED REGRESSION WEIGHTS ... 284
TABLE F-9 SQUARED MULTIPLE CORRELATIONS ... 285
TABLE F-10 COMPARISON OF FIRST AND SECOND-ORDER MODELS ... 286
TABLE G-1 THE TOP 10 PRODUCTS EXPORT BY GHANA ... 287
TABLE G-2 THE TOP 10 EXPORT DESTINATIONS OF GHANA ... 287
TABLE G-3 SHIPPING COMPANIES OPERATING IN GHANA AND REGISTERED UNDER THE GHANA SHIPOWNERS ASSOCIATION ... 288
TABLE G-4 GHANA'S GDP INDICATORS 2015 (PERCENTAGE SHARE IN USD ... 289
XII
LIST OF TABLES
Table 2.1: Influential Factors in Liner Operator Selection ... 42
Table 2.2: Carrier Selection Factors from a Regional Perspective ... 49
Table 3.1: Buy-Phases Included in Each Buy-Class of the Buy-Grid Framework .. 59
Table 3.2: Summary of Carrier Selection Variables and their Underlying Factors . 17 Table 4.1: Transport Logistics Management Research Method ... 84
Table 4.2: Questionnaire ... 110
Table 5.1: Descriptive Statistics of Ocean Carrier Selection Variables ... 120
Table 5.2: Importance of Carrier Selection Variables ... 120
Table 5.3: KMO And Bartlett's Test (Initial Run) ... 143
Table 5.4: Total Variance Explained – EFA with 8 Factors ... 144
Table 5.5: Total Variance Explained (6 Factor Model) ... 144
Table 5.6: Six Components Rotated - Pattern Matrixa ... 147
Table 5.7: Summary of SEM Model Fit Measure Acceptable Levels ... 150
Table 5.8: Standardized Regression Weights ... 151
Table 5.9: Model Fit Summary ... 153
Table 5.10: Regression Weights ... 154
Table 5.11: Reliability and Validation of Six Factors ... 155
Table 5.12: Re-Computation of Reliability and Validity of the Six Factors ... 156
Table 6.1: The Findings of Six Latent Constructs ... 165
XIII
LIST OF FIGURES
Figure 2.1: Relationships between Parties in Liner Shipping... 17
Figure 2.2: Cargo Movement via a Typical Transport Logistics Chain ... 24
Figure 3.1: The Freight Forwarder Buying Decision Process ... 64
Figure 3.2: Conceptual Framework ... 66
Figure 4.1: Claimed Features of Quantitative and Qualitative Methods ... 83
Figure 4.2: Analytical Steps ... 91
Figure 4.3: The Map of Ghana ... 94
Figure 4.4: Geographical Location of Ghana... 95
Figure 4.5: Ghana’s Real GDP Growth Rates ... 96
Figure 4.6: Ghanaian Exports and Imports 1995 - 2014 ... 97
Figure 4.7: Ghana Import Liner Shipping Index (2004-2014) ... 99
Figure 4.8: The Performance of Export Trade per Trade Category (2008-2012) . 100 Figure 4.9: Ghana Container Throughput ... 100
Figure 4.10: Market Share of Main Shipowners in Ghana in 2012 ... 101
Figure 5.1: Number of Years Respondent's Organisation had been Operation ... 127
Figure 5.2: Number of Employees Working in the Respondent's Organisation .... 128
Figure 5.3: Type of Business Provided by the Respondent's Organisation ... 129
Figure 5.4: Service Capability of Respondent's Organisation ... 130
Figure 5.5: Respondent’s Position in the Organisation ... 131
Figure 5.6: Years of Experience in the Freight Forwarding Sector ... 132
Figure 5.7: Path Diagram with Standardized Estimates for all Relationships ... 152
Figure 5.8: Path Diagram Six Factors Modified Model of Two Item Deletion ... 157
Figure 5.9: Path Diagram Six Factors Modified Model of the Competitiveness .... 158
Figure 6.1: The Implications of Selection of Carrier ... 180
XIV
GLOSSARY
AGFI Adjusted Goodness-of-Fit Index
AMC Australian Maritime College
AHP Analytic Hierarchy Process
ASV Average Shared Variance
AVE Average Variance Extracted
CEO Chief Executive Officer
CFA Confirmatory Factor Analysis
CFI Comparative Fit Index
CMA CGM Compagnie Générale Maritime Compagnie Générale Maritime
CMIN/DF Minimum Discrepancy/Degrees of Freedom
CR Composite Reliability
DDP Delivered Duty Paid
EFA Exploratory Factor Analysis
ETA Estimated Time of Arrival
FCL Full Container Load
GCNET Ghana Community Network
GDP Gross Domestic Product
GHGs Greenhouse Gases
GIF Goodness-of-Fit Index
GIFF Ghana Institute of Freight Forwarders
HREC Human Research Ethics Committee
IFI Incremental Fit Index
INCOTERMS International Commercial Terms
LCL Less than Container Load
XV
MICMAC Multiplication Appliqnce a un Classement or cross impact
matrix-multiplication applied to classification
MLM Maritime and Logistics Management
MSC Mediterranean Shipping Company
MSV Maximum Shared Variance
NVOCC Non-Vessel Operating Common Carriers
PCA Principal Components Analysis
PCFI Parsimony-adjusted Comparative Fit Index
PIL Pacific International Lines
PRQ Primary Research Question
RH Research Hypothesis
RMR Root Mean Square Residual
RMSEA Root Mean Square Error of Approximation
SEM Structural Equation Modelling
SMC Squared Multiple Correlations
SPSS Statistical Package for the Social Sciences
SS HREC Social Sciences Human Research Ethics Committee
TLI Tucker-Lewis Index
UNCTAD United Nations Conference on Trade and Development
1
2
CHAPTER 1 INTRODUCTION
1.1 RESEARCH BACKGROUND
It is well known that liner shipping companies rely on fixed regular services,
unlike tramp shipping, which is chartered on a voyage by voyage basis
(Notteboom & Merckx 2006; Samitas & Kenourgios 2007). The sector is
dominated by container trade (Matilionis et al. 2013), and as a result, it is
highly vulnerable to demand volatility. Due to this, liner companies tend to
operate with substantial and chronic levels of excess capacity (Fusillo 2004;
Kou & Luo 2016).
Changes in the global economy and trade over the last decade have had
pervasive impacts on demand for ocean liner services, as well as on
competition between liner operators. First, the global financial crisis erupted
in 2008 and its effect still remains on the buying power of consumers. The
world Gross Domestic Product (GDP) seemed to have recovered slowly in
2013, but it plunged back into recession again, causing many economies to
struggle (United Nations Conference on Trade and Development 2015).
Thus, liner companies are competing for the limited volume of cargo
available.
Secondly, despite the recovery of the global economy and continuous growth
of international trade, overinvestment and the continuous increase in vessel
size approaching 20,000 TEUs has also led to a mismatch between supply
and demand in the liner sector (Drewry Consultancy 2016). This has created
pressure on shipping lines to improve their competitiveness in order to
survive competition in the liner market. The competitiveness of liner shipping
companies in such an increasingly complex market depends on a number of
critical factors that influence client decision making when choosing ocean
container carriers (Fanam, Nguyen & Cahoon 2016; Setamanit &
Pipatwattana 2015). The survival of liner companies depends on their ability
to attract shippers represented by freight forwarders, whose role is to
coordinate container movement from the origin to the destination. Liner
3
since customer satisfaction in the liner shipping sector is the cornerstone for
market share increment by the ocean container carriers (Yuen, Thai &
Dahlgaard-Park 2015).
Nearly 85% of all international shipments involve the services of freight
forwarders (Kilibarda et al. 2016). Most businesses use freight forwarder
services to move their products across borders, and approximately 85% of
foreign trade is handled by freight forwarders (Djankov, Freund & Pham
2010; Eun & Seo 2013). Thus, it is of natural interest for them to consider the
role of freight forwarders in liner shipping, especially from the perspective of
the competitiveness of liner operators. Previous studies such as Gupta
(2008), Meixell and Norbis (2012), Maheshika and Abeysekara (2015), Van
den Berg, Roy and De Langen (2015) and Wen and Lin (2015) have
acknowledged freight forwarders as being the key agent acting on behalf of
shippers and dealing with liner operators.
The two primary classifications of legal roles for freight forwarders are that of
agent (for the cargo owner) and the principal (Cain 2014 p25). The original
duty of a freight forwarder is as an agent of the cargo owner, and therefore
they represent and execute the business wishes of that owner. However, in
most cases cargo owners tend to delegate the majority of that responsibility
onto freight forwarders, who can make all critical decisions regarding the total
execution of the carriage. Thus, increasingly it is freight forwarders who are
playing the key role in choosing carriers, and thereby they are becoming the
ones who determine the competitiveness of liner carriers for most routes and
destinations.
The freight forwarders influence in choosing carrier depends on the type of
agency engagement involved, that is, the extent of delegated authority. For
example, a freight forwarder who is playing the role of a clearing agent only
engages in the movement of cargo from the designation port to the premises
of the cargo owner, and therefore does not engage in the selection of
carriers. However, a freight forwarder who plays a role as a consolidator and
4
arrangement and coordination of the entire carriage, from factory to
warehouse. Therefore, these freight forwarders exert a great deal of
influence on the choice of carriers. The focus of this thesis is to investigate
this latter role of freight forwarders, where they themselves are solely making
the selection of ocean container carrier without a great deal of influence from
cargo owners, because this role is becoming increasingly prevalent in the
context of the Ghanaian freight forwarding sector.
1.2 PROBLEM STATEMENT AND MOTIVATIONS
The existing literature on liner shipping competitiveness has centred mainly
on the analysis of carrier selection criteria from the shipper's perspective. For
example, Bardi, Bagchi and Raghunathan (1989) studied carrier service
factors observed by United States shippers prior to and during deregulation.
Brooks (1990) analysed the service performance of ocean container carriers
by evaluating the amount of importance that the Canadian shipper attached
to selection factors when purchasing the shipping service from ocean
container carriers. Abshire and Premeaux (1991) examined the perceptual
differences between American shippers and carriers concerning the
importance attached to carrier selection variables by the shippers. Tuna and
Silan (2002) analysed carrier selection factors perceived by Turkish shippers
in the liner shipping service. Lu (2007) evaluated important factors
influencing the service performance of ocean container carriers from a
Taiwanese shipper's perspective. Kannan, Bose and Kannan (2012)
empirically investigated salient factors that India shippers observed when
choosing ocean container carriers, based on the carrier's service quality.
Ben-Akiva, Bolduc and Park (2013) explored carrier selection criteria that
United States shippers perceived as important when buying transport
services from liner shipping companies. Lirn and Wong (2013) evaluated the
level of importance that Taiwanese shippers attached to ocean carrier
service criteria.
However, little attention has been given to the selection of carriers from the freight forwarders’ perspective (Wen & Lin 2015; Yuen, Thai &
5
therefore, theoretically it was assumed shippers nominate a carrier and
freight forwarders comply with a carrier nominated by shippers. Practically, it
is the freight forwarders who choose carrier on behalf of shippers and
managed their logistics process (Reid & Burlingame 2015). Undertaking
research related to the selection of ocean container carriers from the
perspective of freight forwarder is valuable for enriching liner shipping
company capabilities and competitiveness in the maritime industry. As shown
in Chao and Chen (2014), Chu (2014) and Setamanit and Pipatwattana
(2015), factors influential to freight forwarder decisions for selecting ocean carriers reflect the competitiveness of liner shipping companies. Competition
in the liner shipping sector by global players in cargo volume attraction
creates a need for shipping companies to position themselves strategically so
as to attract customers to their services. Shippers and freight forwarders both
supply cargo volume to ocean container carriers (Van den Berg, Roy & De
Langen 2015), of which the latter offered more cargo volume than the former. There is no consensus in the literature on the factors affecting the selection
of ocean container carriers. Following the above studies and liner sector
operational performance and profit maximasation, current studies take the
view that freight forwarders predominantly engage in ocean carrier selection,
and therefore their views and experience in dealing with liner companies
should reflect the competitiveness of the ocean carriers beacuse they have
substantial knowledge and are deeply involved in liner shipping operations
(Li, Zichao, Bookbinder & Elhedhli 2012; Saeed 2013). The perspective of
freight forwarders on the selection of carrier is different to that of cargo
owners, because the freight forwarders are agents who have different
interests than that of cargo owners (Murphy, Daley & Dalenberg 1991;
Murphy & Daley 2001). Thus, it is important to investigate salient factors that
are considered by freight forwarders as they make their decisions to choose
ocean container carriers.
Shipping has played a critical role in Ghana’s trade and economic
development, especially because the country is more dependent on
6
of goods and services contribute to nearly half of its Gross Domestic Product
(GDP), and its imports are valued at 10% of GDP with an annual percentage
of 2.27 (World Bank 2014). Given the country’s reliance on international
trade, its maritime transport sector has increasingly played an important role
in its economic development. In this way, the maritime sector contributes a significant share to Ghana’s GDP.
The liner shipping sector in Ghana has continued to expand rapidly for the
past number of years due to a shift from labour-intensive agriculture to
capital-intensive manufacturing, which has caused containerised trade
volume to grow by 64%, from 305,858 TEUs in 2003, to 841,989 TUEs in
2013 (Ghana Ports and Harbour Authority 2014). Even during the current
economic downturn, container volume has continued to grow throughout
Ghana, especially due to the post-election crisis in the Ivory Coast. That
crisis placed Ghana in the position of being able to better attract container
volumes from neighbouring landlocked countries (Burkina Faso, Mali and
Niger).
It has also been important to use liner shipping transport to support the
continued growth of the Ghanaian economy to meet cargo owner
requirements. Therefore, the freight forwarders role has become much more
important in achieving this objective. Approximately 95% of Ghana’s foreign
trade is carried by sea (Laursen 2014). This necessitates the use of freight
forwarders, as most cargo owners are engaging them to do that.
Freight forwarders play a key role in facilitating Ghanaian exports and
imports. There are 301 freight forwarders registered with the Ghana Institute
of Freight Forwarders (GIFF). The freight forwarding sector in Ghana
comprises of smaller local and bigger local/foreign multinational companies
like DHL global, Bollore, Panalpina, Comexas, Damco, Antrak, Baj Freight,
Conship, MacDan Shipping, Allship limited, Mass logistics and Freight
Masters. There are also quite a number of medium size local freight
forwarding companies. Increasingly, more freight forwarding companies in
Ghana are operating as consolidators and NVOCCs engaging in entire
7
Ghana customs excise and preventive service plays a regulatory role under
the Legislative Instrument Decree (LID 178) by licencing freight forwarders in
Ghana to transact the business of freight forwarding on behalf of their clients
(Ghana Customs Excise and Preventive Service 1993). This process aims to
effectively regulate and control the operations of freight forwarding in Ghana.
1.3 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS
The objective of this study is to examine influential factors considered by
freight forwarders when selecting liner operators, and to provide an analysis
of the ocean carrier selection criteria which affect the competitiveness of liner
shipping companies. Based on this, implications of selection criteria for
ocean container carriers will be provided, so as to develop their marketing and competition strategies. Şakar (2012) argued that as compared to freight
forwarders, who are acting as agents on behalf of many industries for a wider
range of traffic, shippers (exporters/importers) are not likely to have enough
experience for the selection of ocean carriers.
In order to achieve the above research objective, the following research
questions (RQ) will be answered:
RQ1: What are the key considerations for freight forwarders in their selection of liner carriers?
Over the last four decades, the discussion regarding factors influencing
selection of carriers was centred on freight rates/cost and the reliability of
pickup/delivery related issues (Abshire & Premeaux 1991; Cook 1967;
Larson & Gammelgaard 2001; McGinnis 1990; Saldanha et al. 2009).
However, Setamanit and Pipatwattana (2015) noted that the dimensions of
influential factors observed when selecting ocean carriers have changed over
time due to the dynamism fostered by globalisation. Thus, the selection of
carriers by the freight forwarders affects the competitiveness of ocean
container carriers, which leads to the next research question to be
8
RQ2: In what ways do freight forwarders’ carrier selection considerations
and practices impact the competitiveness of liner carriers on a particular
route?
The selection of ocean container carriers by freight forwarders has a wide
range of implications for liner shipping companies. Freight forwarder's
selections of carriers may affect shipping line market share with regards to
the amount of cargo volume a carrier can attract and carry per voyage, which
reflects the total revenue a carrier generates. The selection of the “best”
carrier by the freight forwarders can help shippers to reduce overall logistics
costs and improve the delivery of shipper consignments to their intended
destination in real time. The ability of ocean carriers to understand all
selection criteria employed by the freight forwarders could enable them to
respond to those specific criteria in order to attract freight forwarders.
Attracting freight forwarders to a particular carrier like this can positively
impact its competitiveness. Thus, the selection of suitable carriers by freight forwarders’ enhances shippers’ service satisfaction, and thereby directly
causes more shippers to contract freight forwarders for cargo transportation.
However, the selection of suitable carriers poses challenges to the freight
forwarders, which leads to the next research question to be considered.
RQ3: What are the issues facing freight forwarders in the selection of liner operators?
Trade facilitation by freight forwarders poses a challenge through the efficient
coordination of the logistics chain process among transport players, and the
contract of carriage. As business progress issues always emerge, and freight
forwarders are also confronted with these kinds of business challenges.
Issues emanating in the freight forwarding sector can be detrimental to the
existence of freight forwarders as a transport intermediary whose purpose is
to coordinate the movement of goods efficiently and effectively without
distorting the logistics chain.
Freight forwarders face both internal and external issues in their service
9
reliability, damage-free handling of cargo and favourable freight rates are the
most cited issues discussed in the literature (Ding, Tseng & Hsu 2013;
Maheshika & Abeysekara 2015). This is further discussed in the subsequent
chapter.
Freight forwarders are mainly non-asset based; hence, they do not own the
actual carriers for the carriage of goods. They also largely depend on the
liner shipping companies for the main transport of goods by sea. As a result, freight forwarders have to make the right decision in selecting the ‘best’
ocean carrier for the transportation of goods. In choosing the most suitable
ocean container carrier, a freight forwarder considers various factors before
deciding on an ocean carrier to use.
Data gathered through an online survey will help identify influential factors
affecting the selection of ocean container carriers. Data analysis will be
conducted to test the relationship between these factors. The results
obtained from the analysis will throw more light on how the factors influence
the competitiveness of ocean container carriers, and the results will further
show the weight of importance that freight forwarders attach to each
influential factor.
This study used a structured questionnaire to survey views on the selection of ocean carriers from the freight forwarders’ perspective in the Ghanaian
maritime sector. This collection of data of these is necessary for answering
the research questions. The study employed a web-based survey as the data
collection technique to explore the influential factors guiding freight forwarder
decisions.
1.4 RESEARCH METHODS AND ANALYSIS
There has been a significant shift in the last ten years in the selection of
carriers, with authors such as, Saldanha et al. (2009), Park, JJ and Koo
(2010), Sardana et al. (2010) and Van den Berg, Roy and De Langen
(2014a) concentrating on the analysis of cost as a key driving factor
influencing the choice of carriers as shippers aim to reduce transportation
10
selection of ocean container carriers from the perspectives of freight
forwarders, because the selection of carriers by freight forwarders
significantly affects the market share and overall profitability of liner shipping
companies. Theoretically, it is the shippers who are considered the decision
makers regarding carrier selection. However, in reality, it is the freight
forwarders who choose carriers on behalf of shippers (Amaruchkul &
Lorchirachoonkul 2011; Flitsch & Jahn 2014).
In this study, the parameters that affect the selection of ocean carriers and
which is found in the previous literature is examined and selected to
constitute the main structure of the survey instrument. Discussions were held
with freight forwarders and academics to check the appropriateness of the
parameters selected from journal papers, and questions were amended
based on discussions held with the academics and freight forwarders.
In order to effectively conduct the proposed investigation and test the weight
of importance that the freight forwarders attached to each selection factor, a
mixed model approach that is quantitative and qualitative (open-ended
questions) has been used, as discussed in Chapter 4 and Chapter 5. For a
quantitative approach, a valid responses 105 was collected from freight
forwarders (with a response rate of 54.4%) in the developing country, Ghana.
After elimination of cases with unengaged responses, 103 cases were used
in the final analysis. Initially, measurement models in confirmatory factor
analysis were tested using AMOS 22 software (Byrne 2013 & Gaskin 2013).
The model was refined from the first-order model to second-order model.
However, no measurement item was excluded from the 16 items identified
during the exploratory factor analysis. The 16 items with six construct
measures were used to test the order model. The proposed
second-order model was found to have a better fit than the first-second-order model, and the
results of the second-order model are then discussed in Chapter 6.
Furthermore, for qualitative analysis of the competitiveness of liner operators,
five open-ended questions were asked. Content analysis was used to
analyse the responses by categorising cases according to themes, enabling
11
& Hughes 2014; Mason 2002). The open-ended questions findings showed
further new directions on freight forwarder perceptions concerning the
competitiveness of liner operators. However, the open-ended questions
findings reinforced and supported the results of the quantitative analysis.
1.5 CONTRIBUTIONS AND SIGNIFICANCE OF THE STUDY
The present study contributes to the body of knowledge in the field of
maritime transport in a number of ways. The major areas of contribution are:
From a theoretical perspective, the study examines basic economic theory (the transport service buyer behaviour model) to gain a better
understanding of freight forwarder buying decisions, and thereby
contributes to an understanding of factors involved in freight forwarder
buying decisions. Clearly, the applicability of the theory and
implications for liner shipping, in regards to factors influencing the
selection criteria is demonstrated.
The study contributes to the literature by integrating data from a developing country into the empirical generalisations, where
managerial implications are identified, and also significant
contributions are made specifically to the context of Ghana.
This study is the first of its kind to investigate carrier selection from the perspective of freight forwarders in the context of Africa, and it
provides a platform for other empirical investigations to be carried out
in future research.
The conceptual framework proposed in the present study is validated
with high explanatory power, and it achieves a good fit to the data.
Therefore, the study contributes to the literature by validating the
factors in the model. At the same time, the qualitative information
provides support to schedule reliability, document accuracy, service
quality, as well as freight rate within a carrier's competitiveness.
While this study has chosen carrier selection variables from the extant
literature, the appropriate methodological process has been followed
for testing their reliability and validity (Campbell, DT & Fiske 1959;
12
The study applied both first and second-order models throguh factor analysis to identify the influetial factors affecting a choice of liner
operators.
Finally, this study is the first to test the hypothesis regarding significant factors impacting the competitiveness of liner operators from a freight forwarder’s perspective, by applying both exploratory factor analysis
and confirmatory factor analysis in the maritime sector.
In Chapter 7 (section 7.3) further details of these contributions are discussed.
The current study is expected to provide a better understanding of the
competitiveness of liner shipping, especially from the perspective of freight
forwarders, where previously only limited research has been carried out. The
study identifies the influential factors in ocean carrier selection by freight
forwarders, and provides an analysis of the relationships between these
factors (Research Question 2). It also reveals the key issues facing freight
forwarders, and based on this, draws implications for liner operators, freight
forwarders, shippers and researchers. An understanding of the key factors
employed by freight forwarders will enable liner shipping companies to
improve their competitiveness and develop effective marketing strategies.
Implications from the analysis will also help freight shippers to understand
better the issues facing freight forwarders, and thereby help them to better
manage their relationship with them.
1.6 STRUCTURE OF THE THESIS
The rest of this thesis is structured as follows. In Chapter 2, the extant
literature is examined concerning factors that influence selection of liner
operators from the freight forwarder perspective. Chapter 3 then presents the
research framework and the freight forwarder buying decision model, and its
implications for the competitiveness of liner shipping companies. Chapter 4
outlines the research methodology used in answering the research questions
in order to achieve the research aims. This includes the explanations of the
appropriate data collection method used. The unit of analysis, target
13
processes, data collection and data analysis are explained in Chapter 4.
Chapter 4 also discusses Ghanaian maritime trade, and more specifically
liner trade and its contribution to the economy of Ghana. The role of freight
forwarders in Ghana and their contribution to the economy development are
all explained in Chapter 4. Chapter 5 conducts the analysis of the web-based
survey data, and investigates the competitiveness of liner operators from the
freight forwarder perspective in regards to factors influencing the selection of
ocean carriers. Exploratory Factor Analysis (EFA) and Confirmatory Factor
Analysis (CFA) are employed to discover significant factors that freight
forwarders consider when selecting ocean carriers.
In Chapter 6, further discussion and interpretation of the results is presented
around the salient factors employed by freight forwarders when choosing
liner operators. The interpretation of results is vital to liner shipping
companies because it will enable carriers to focus their resources on
providing appropriate liner services in order to attract and retain freight
forwarders to use their liner services. Finally, Chapter 7 concludes the
summary of the research findings and offers a discussion of implications. It
also presents contributions made by the research and explains the limitations
and scope for future research.
In summary, this chapter has presented the background and overview of the
research to be conducted. Background information has explicitly stipulated
the research gap in the literature. The research problem, research question
and objective of the study have clearly pointed out the importance of this
study. Given the objective of this study, the following chapter will include a
comprehensive review of the relevant theories which emerged from a
thorough review of the literature, focusing on ocean carrier selection from the
14
CHAPTER TWO
LITERATURE REVIEW
15
CHAPTER 2 CARRIER CHOICE CRITERIA
2.1 INTRODUCTION
The phenomenon of globalisation has made it possible for shippers to
compete in the international market, since it brings the need for delivery to
the right place at the right time. Thus, the emphasis for shippers is to
minimise transportation costs and transit time for consignment delivery.
Consignments are hauled long distances from production centres to
consumers, necessitating a need for the physical carriage of goods by
carriers. As a result, over the past four decades the importance of carrier
selection criteria has become much more of a research focus within
academia and for industry experts. Earlier carrier selection studies focused
mainly on the analysis of carrier choice from the shipper's perspective (Das
1974; Krapfel & Mentzer 1982; McGinnis 1979), with more attention given to
cost as the determinate factor that influences choice of shippers. Shippers
outsource their logistics service activities in order to lower transportation
costs, to decrease consignment lead time, and to respond to international
demand by the customers (Hong, Chin & Liu 2004; Rao & Young 1994;
Wilding & Juriado 2004; Yang & Zhao 2016).
The outsourcing of logistics activities creates the need for freight forwarders
to function as a transport intermediary with active participation in the
international carriage of freight (Rajesh et al. 2011). The outsourcing of
logistics activities to freight forwarders has enabled organisations or shippers
to gain approximately 9% savings and 15% improvement in capacity and
quality (Sahay & Mohan 2006). However, the freight forwarder has to deal
with ocean carriers for the physical carriage of goods on behalf of the
shipper, and has to select a particular carrier for the transportation of freight.
Carrier selection studies mainly concentrate on the examination of influential
factors affecting the selection of carriers based on perceptual differences
between shippers and carriers (Abshire & Premeaux 1991; Jerman,
Anderson & Constantin 1978; Matear & Gray 1993). This perceptual
16
issue being a level of dissatisfaction with services provided by carriers to
shippers (Gibson, Rutner & Keller 2002; Premeaux 2010). Evans and
Southard (1974) is one of the earlier studies to analyse carrier selection
factors by exploring perceptual differences between shippers and carriers.
Their finding revealed that carriers do not have the views on the important
selection factors as shippers.
More recent studies are focusing on the evaluation of factors affecting choice
of carrier and mode from the perspective of freight forwarders. Most of these
studies have observed factors such as after delivery service, transit time,
safety quality, flexibility, and reliability as the main influential factors that
affect the choice of carrier from the viewpoint of freight forwarders (see for
example Chung, Chung & Tai 2011; Ding et al. 2016; Reis 2014).
This chapter focuses on providing a review of the literature about the issues
and factors which affect the decisions of freight forwarders in selecting
carriers. The review is based on a search of relevant studies using various
search engines, including Google Scholar, Science Direct, Taylor & Francis
Online Journals, Emerald Library, Elsevier, UTAS Library catalogue,
MegaSearch, Conference papers, ProQuest, Web of science, published
books, and PhD thesis, with the purpose of identifying state of art research
and areas of interest for further investigation.
The search results indicate that the selection of ocean container carriers has
not been widely discussed in the literature from the freight forwarder's
perspective. There is a very limited number of studies on the factors that
influence the choice of ocean container carriers from their perspective (see
for example Chung, Chung & Tai 2011; Lin & Yeh 2010; Wen & Huang
2007).
This chapter also provides an overview of the role of freight forwarders in
contributing to the competitiveness of ocean container carriers. The next
section discusses the relationships between parties in liner shipping as the
basis on which the role of freight forwarders and their relationships with liner
17
2.2 RELATIONSHIPS BETWEEN PARTIES IN LINER SHIPPING
Figure 2.1 presents the relationships between parties in liner shipping. Figure
2.1 was developed base on the literature review and discussion with
professional freight forwarders and logistics experts. The relationship
between parties include:
Stakeholders and other service providers – this shows that efficient cargo flow is enabled by other stakeholders within the container
supply chain such as port authorities, terminal operators, stevedores
and customs, and the effective coordination of liner operators with
these network actors is vital for smooth container flow.
The liner shipping market – is the core business area of liner operators in which they deal with their business-to-business customers such as
freight forwarders, shippers, and the consignees for freight generation.
[image:33.595.123.571.395.703.2]Source: Author
Figure 2.1: Relationships between Parties in Liner Shipping
Port authorities Terminal operators Stevedores Shipper / Exporter Shipping Warehousing Consolidation Liner Operator Customs Consignee / Importer
3rd party
logistics Freight forwarder Freight forwarder Liner operator’s service hierarchy Stakeholders and other
service providers
The liner shipping market
18
The liner operator’s service hierarchy – this identifies the level of services provided by liner operators such as shipping services,
warehousing, consolidation and third party logistics.
The above relationships are characterised by the following elements:
The international commercial term (incoterm) contract exists between
the shipper (seller) and the consignee (buyer)
The shippers or consignees engage in the freight contract, with freight
forwarders for the transportation of cargo from the origin of the
shippers or (seller's warehouse) to their destination (buyer
warehouse).
The freight forwarders engage ocean carriers in a contract of carriage
for physical transportation of cargo from port of origin to destination
port.
The ocean carrier undertakes the actual handling of cargo by liaising with other transport actors within the container supply chain by
engaging in a handling contract with port authorities, terminal
operators and stevedoring companies for the safe and fast handling of
cargo through the maritime transport interface.
Liner operators facilitate the cargo handling process by providing the services of shipping, warehousing, the consolidation of cargoes and
haulage services to assist customers in reducing cost.
The effective collaboration of ocean carriers with terminal operators, port
authorities, stevedore companies and customs can foster the free flow of
cargo through the maritime interface, and significantly improve total transit
time within the container transport chain (Fransoo & Lee 2013). Any delay or
disruption in the container terminal will have a knock-on effect on the other
areas of the container supply chain. For example, a delay in terminal
operations will affect transit time, cost, and service reliability. Likewise, the
ability of ocean container carriers to obtain a berth on arrival or to obtain a
dedicated berth in the port could greatly improve the carrier's port turnaround
time. Freight forwarders as transport intermediaries largely depend on an
19
improve the container flow within the logistics chain (Van den Berg, Roy & De
Langen 2014a).
Figure 2.1 indicates that the key selection criteria used in the selection of
ocean container carriers begin with main international commercial terms
(incoterms) contracts signed between shippers (sellers) and consignees
(buyers). Either of the two parties then engages the freight forwarders to
execute the cargo delivery (Grainger 2014). The shippers and freight
forwarders engage in a contract of carriage in which the freight forwarders
assume the obligation to deliver the cargo to the named destination
appointed by the shippers. In most cases, the freight forwarders are obliged
to deliver the cargo to the consignees based on the type of incoterm contract
which has existed between shippers and consignees. For the freight
forwarders to fulfil their obligation of logistics transport for door-to-door cargo
delivery, freight forwarders contract liner shipping companies to undertake
the physical carriage of goods (Van Der Horst & De Langen 2008). As a
result, a carriage of freight contractual agreement exists between ocean
container carriers and freight forwarders. Liner operators offer a hierachy of
services such as shipping, warehousing, consolidation and third party
logistics in order to meet the demand of their customers.
2.3 THE ROLE OF FREIGHT FORWARDERS IN LINER
SHIPPING
The rapid increase in world trade and the relocation of industries to low
labour cost regions requires quick cargo documentation in logistics chains.
The movement of goods across national frontiers requires customs
clearance. Globally however, customs clearance involves “tedious checks, irritating delays and complicated form filling” (Appeals & de Swielande 1998
p.111). Goods need to be processed on-time through customs. Ironically,
customs documentation processing has remained the most difficult challenge
confronting shippers in maritime operations in many countries (Haughton &
Desmeules 2001; Muthuvelatutham & Karuppasamy 2013). As a result,
cause major delays in cross-border cargo clearance for cargo owners
20
regulations and procedures tends to be high, especially in developing
countries (Sawhney & Sumukadas 2005). According to (Arvis et al. 2007)
bureaucracy and inefficiency in customs documentation clearance are the
biggest hindrances to international trade. Inadvertently, customs procedures
and clearance times are still bottlenecks in the international logistics chain
(Grainger 2014). More than 70% of the delays associated with cargo
movement is due to administration hurdles, numerous customs procedures,
tax procedures, and cargo inspections, often before containers reach a port
or after leaving a port (Djankov, Freund & Pham 2010). The freight
forwarder's management of the cargo documentation process enables
shippers to sail through rigorous government regulations (Park Choi & Zhang
2009; Reid & Burlingame 2015).
International shippers are looking for single-source suppliers to deliver
door-to-door services on time and at a reasonable cost (Lam & Zhang 2014;
Murphy, Daley & Dalenberg 1992). Banomyong and Supatn (2011) found
that only 19% of shippers like direct contact with shipping companies.
Several factors contribute to the popularity of freight forwarding services.
First, the just-in-time concept and the intensification of globalisation are some
of the factors which necessitate shippers or manufacturers to rely on freight
forwarders for pick-up and delivery of products across international
boundaries from origin to their destination markets (Chuah & Yingling 2005;
Goldberg 1990; Zimmer 2002).
Secondly, the ambiguity of international rules and regulations in logistics
processes are some of the challenges confronting shippers. Since 11/9/2001
international transport has undergone constant and dramatic changes
concerning transportation regulations and standards (Peterson & Treat
2008). Due to risk percieved to be associated with international transport of
goods, especially conternarised cargo, because containers pose a significant
opportunity for terrorist to use as weapon of mass destruction across nations
(Leonard, Gallo & Véronneau 2015). As a result of this, there has been
frequent changes on regulations with regards to international transportation
21
international carriage of goods poses a challenge to shippers (Terpstra,
Foley & Sarathy 2012). A typical example is a recent amendment by China,
to introduce a 24-hour manifest rule without any notice to shippers prior to
changes (Knowler 2014). In most cases, smaller shippers who are
predominantly not versatile with transport procedures, especially transport
procedures in foreign countries, tend to contract the services of freight
forwarders to manage their cargo movement (Reid & Burlingame 2015;
Schramm 2012; Tongzon 2009).
Furthermore, as Nordas, Pinali and Grosso (2006) note, shippers in
developing countries face the difficulty of lengthy administrative procedures
related to exports and imports, which prevent local shippers from exporting
time-sensitive products. Shippers are confined to the domestic market
because they cannot meet reliability requirements as demanded by foreign
customers (Nordas, Pinali & Grosso 2006).
Cargo owners can overcome hinterland transportation challenges in foreign
countries through the outsourcing of transportation activities to freight
forwarders (Ducruet, César & Van Der Horst 2009). Cargo owners contract
freight forwarders in international logistics operations as a strategic move to
reduce investment in logistics activities, including capital investment in
facilities, equipment, information technology, and manpower (Razzaque &
Sheng 1998). Shippers outsource logistics activities because they want to
access world-class processes, quality service, a better capability of adjusting
to changing environmental needs, reducing the need for capital investments,
better cash-flow, reliability, and customised and cost-effective logistics
processes (Persson & Virum 2001). Shippers have obtained lower freight
rates through freight forwarders than if the shippers themselves got freight
rates directly from carriers (Lambert & Cooper 2000).
Kokkinis, Mihiotis and Pappis (2006) revealed that only 33% of cargo owners
usually select the carrier, whereas freight forwarders do 67% of carrier
selection on behalf of shippers. Lieb and Miller (2002) explained that over
60% of United States shippers confirmed engaging the services of freight
22
The study of Coppersmith (2003) pointed out that more than 60% of domestic
and 90% of international cargo volume are tendered by freight forwarders.
The selection of a carrier for inbound and outbound freight movement is
important for the shippers (Meixell & Norbis 2008), whereas making a reasonable decision to select the ‘best’ carrier by shippers can be seen as a
strategic tool for achieving competitive advantage (Bhatnagar & Teo 2009).
Cargo owners outsource ocean carrier choice to freight forwarders, and only
a few cargo owners select ocean carriers in-house (Gailus & Jahn 2013).
The single largest component of cost in international trade is logistics costs,
often comprising of over half of the total international trade costs (Arvis et al.
2016). The cost of transportation can have a significant impact on a
manufacturer's finished product, and even raw materials are driven by the
cost of shipping (Monczka et al. 2008). The insightful knowledge and
practical expertise possessed by freight forwarders in logistics management
enables them to help shippers minimise logistics costs and delays in cargo
processes (Schramm 2003).
2.3.1 FREIGHT FORWARDERS AS SHIPPING AGENTS
A freight forwarder is a person who primarily coordinates the transportation of
goods on behalf of a consignor or consignee, and acts as a port
representative for an exporter or importer, providing export and import related
services (Ullman 1970). According to Hill (1972) it is not easy to establish an
accurate definition of freight forwarders, owing to the difficulties of
determining the exact scope of their activities which leads to various
definitions about a freight forwarder. The author defines a freight forwarder
as any person who hires his or her services out to the general public so as to
provide and arrange transportation of property for compensation, and who
may assemble and coordinate shipment for such purposes (Hill 1972).
However, Murphy and Daley (2001) have described freight forwarders as
international trade specialists who can provide a variety of functions to
facilitate the movement of cross-border shipments on behalf of shippers.
Additionally, the European Commission (2011) has explained that freight
23
customs declarations, cargo documents or letters of credit. They strive to
achieve the best possible transport services for customers through the
arrangement of regrouping, storage, management, packaging and the
distribution of cargoes. The services of freight forwarders further include
auxiliary and advisory services regarding the issuing and managing of
documents, customs facilitations, declaring cargos to the authorities, the
insurance of merchandise, and collecting and paying freight (Federation
Internationale des Association de Transitaires et Assimiles 2011). However,
the present study has define a freight forwarder as a person who make
him/herself available for the public to perform part or whole of transport
services of moving goods from origin to destination including documentation
process, logistics operations, professional advice and even representing
exporter (seller) or importer (buyer) in travelling arrangement.
The introduction of the container and its fundamental part in the modern
door-to-door delivery service has broadened the scope of services for freight
forwarders (Cain 2014). In their new capacity, freight forwarders stand in the
gap for cargo owners, to facilitate a smooth process for goods through the
container logistics chain from sender to receiver. In most cases, freight
forwarders generate profits from the difference between the price that
customers are obliged to pay for the requested execution, and the costs of
request fulfilment (Krajewska & Kopfer 2006a). In the international logistics
chain, freight forwarders play a significant role in the various stages of the
transport logistics process in facilitating the smooth movement of goods.
Figure 2.2 shows the role of freight forwarders within the international
transport logistics chain. Freight forwarders who depend on their agency
engagement as NVOCCs may act as a one-stop-shop shipping point for
cargo owners (Murphy and Daley 1995). In this capacity a freight forwarder manages the entire transport chain for cargo owners from manufacturer’s
premises to the consignee’s warehouse. The shippers and consignees deal
with the freight forwarder, who manages the entire transport logistics chain